The $45 billion Comcast-Time Warner Cable merger that initially seemed inevitable now seems almost impossible.
Amid serious objections to the deal from government regulators, Comcast “is planning to walk away” from the deal, Bloomberg reported Thursday afternoon, citing “people with knowledge of the matter.”
Comcast and Time Warner Cable declined to immediately comment, but there were signals that an announcement might be forthcoming later Thursday or Friday.
The deal has no “breakup fee” for Comcast — industry parlance for a financial penalty.
The potential collapse of the merger came one day after a series of meetings between the cable companies and government officials. The officials shared a long list of reservations about the proposed combination of two cable and broadband giants.
In the wake of the meetings, some of the parties involved are speaking about the proposed deal in the past tense.
Even before Bloomberg’s report on Thursday, some Wall Street analysts said they expect Comcast to walk away, abandoning 15 months of preparation while blaming the collapse of the merger on a Washington climate led by Democrats that is hostile to business.
A person knowledgeable about the meetings suggested that Comcast was going through the five “stages of grief” after Wednesday’s meetings.
Why? Because the key piece of new information after Wednesday’s meetings was about the Federal Communications Commission, which along with the Department of Justice has been reviewing the proposed combination and clearly has doubts about it.
FCC staffers are not convinced the merger is in the public interest, and they are recommending that the case be heard by an administrative law judge.
It’s a bureaucratic maneuver, one that effectively strangles the merger by swallowing up months and months of time. It happens so rarely that the FCC barely has the staff to do it.
The Wall Street Journal first reported on the staff recommendation on Wednesday night.
BTIG Research analyst Richard Greenfield reacted by saying, “This would appear to be a death sentence for the transaction.”
An FCC spokeswoman declined to comment. But another person confirmed to CNNMoney that the five commissioners have been briefed on the recommendation, and that a vote will be scheduled soon.
The commission is comprised of three Democrats and two Republicans, so the hearing will likely be supported by a majority.
There is serious skepticism about the deal within the Justice Department, as well. The antitrust attorneys there may try to apply so many conditions to the merger that it makes it untenable for Comcast.
So in essence, a deal that would have reshaped American media is on life support right now.
“No, the Comcast deal isn’t dead yet,” MoffettNathanson senior analyst Craig Moffett wrote Thursday morning. “But it’s a bit like an elephant that has been dropped out of an airplane. At around 10,000 feet, it is technically still alive. But it is falling fast, there’s not much you can do to stop it, and its odds of survival are pretty low when it hits the ground.”
Comcast is already the number one provider of cable TV and broadband in the United States with over 20 million subscribers. What the company wanted — and still wants — is to gain more subscribers in key markets like New York and Los Angeles.
Time Warner Cable, with 11 million subscribers, could — and maybe somehow still will — provide that. Like Comcast, the company is not commenting. It is possible that another bidder will swoop in for Time Warner Cable if Comcast walks away.
Opponents of the deal are celebrating the news of the likely FCC hearing.
“Comcast merger is dead” read a blunt tweet from Tim Wu, the Columbia University professor who pioneered “net neutrality.”
Comcast’s competitors are privately celebrating, too. Companies like 21st Century Fox and Time Warner, the owner of this web site, had concerns about the merger but rarely said so publicly.
Comcast is not a company accustomed to losing. The government approved its acquisition of NBCUniversal, albeit with conditions, back in 2011.
As recently as last week, Comcast expressed confidence that the Time Warner Cable merger will go through.
“The process is not necessarily over if Comcast chooses to fight,” analysts at Bernstein pointed out in a note to investors a few days ago.
But as Moffett put it on Thursday morning, “engaging in a war of attrition with the U.S. government is generally a bad idea and one rarely undertaken.”
Some people saw this coming even before the merger was announced to great fanfare — and presumptions it would be approved — in February 2014.
When the bid was being considered at the end of 2013, Republican FCC commissioner Ajit Pai told The Journal, “Precedents like this suggest an outright acquisition by Comcast of Time Warner Cable could face a number of hurdles in the Obama administration. A Republican administration likely would be more inclined to approve a deal.”
(Time Warner Cable was a unit of Time Warner until 2009. The two companies are no longer related except by name.)